rch uses customer segmentation models to increase the effectiveness of loyalty marketing campaigns

It is crucial to create a loyalty marketing strategy in order to understand that each customer is different. Each member has unique needs, preferences and communication channels. They also have different behavior patterns and emotions. It is dangerous to try and scale your business by treating all of these members as one through mass communication. Segmenting customers is crucial to your business’ success. But What is customer Segmentation? Why Is it Important? Which Segmentation Models Should You Consider?

1. What is customer segmentation?

Marketers use customer segmentation to divide their customers into groups that are more efficient and provide a more personalized experience. Segments can be based on a combination of demographics, psychographics and preferences or behavior.

Customers can be divided based on their demographics, such as age, gender, and location. These characteristics can then be combined with preferences, such as how they would like to be contacted. Account history can also be used to show their account history, such as the number of transactions in the last few month or their lifetime value. Segments can be as basic or as complex as you like.

To create a customer segmentation strategy, your company must understand your audience and their behavior. This will enable you to allocate budget and resources more effectively and help your business grow faster.

2. Why is customer segmentation so important?

Any business will reap many benefits from defining a customer segmentation strategy. These are just a few examples of customer segmentation that should be considered a top priority.

• Effective communication is key
  
  The best brands understand the importance and reach their target audience. A 20-year old female should not be marketed the same way as a 60 year-old male. An in-depth analysis of your customers will result in a more personal experience, taking into account the segment they are communicating through and their preferences. This will ultimately lead to increased engagement and response rates.

  It is important to determine how often a customer should contact you. Optimizing communication time will reduce the risk of overcommunication, which can lead to customers losing trust.

• Marketing ROI can be improved
  
  Segmentation of customers is a key factor in allocating resources and human capital. Companies can identify which segments are more profitable and which ones need less attention. Your revenue will increase while stabilizing your customer base.

• Customer lifetime value should be increased
  
  Increasing customer satisfaction naturally leads to higher engagement. It is important to maintain that engagement for extended periods of time. This can be achieved by tailoring offers to specific groups. This, along with recognising their loyalty to your brand through incentives (coupons or rewards), will help you gain a larger share and spend.

  Brands tend to target high-spending customers to keep them engaged, but it is important to remember your underperforming members. People who have given the company a significant benefit in the past but whose spending patterns have changed over time may be eligible for special attention.

  Personalizing communications based on loyalty segments or trends improves customer service. This also helps to retain customers and encourages loyalty.

• Product improvements
  
  Understanding what motivates customers buy your brand’s products will allow you to tailor offers to meet client needs. This will increase customer satisfaction, which in turn will create brand ambassadors. There is nothing better than happy customers recommending your brand’s products to their friends.

• Your brand should be distinguished from the rest
  
  All of the benefits mentioned above for customer segmentation help you to distinguish yourself from your competitors. They also prepare you to adapt to market changes. Clients are often impulsive and can have different opinions, behaviors, and needs. Segmenting customers means staying ahead of the curve with regard to upcoming trends, understanding clients’ priorities and adapting accordingly.

3. Effective strategies for customer segmentation

Before you embark on your customer segmentation journey, it is important to ask yourself ” What goal do we have?” What unique selling points does your brand have? What number of members will be involved in the marketing team? Once you have established this, your focus can shift to your customer base. You might need to determine the size of your audience, identify which segments are most likely to spend more, and so on.

Next, determine what data will need to be collected and how they will be collected. This information will form the basis of your marketing campaigns and initiatives and is critical for creating segments. To perform any segmentation exercise, you need to have access to the most crucial piece of information: data.

You can collect data at different points in your loyalty lifecycle. This includes mandatory enrollment and optional follow-up in the form a survey. All information will now be provided directly by clients. This is zero party data.

These data points can also be combined into segments. It is a good idea to begin with a broad scope and then gradually narrow it down. AI and ML are great tools for analyzing and identifying trends and behavior. They also help you save time and reduce your staff’s workload. Once you have created these customer segmentation models, focus your efforts on acquiring new customers and retaining existing customers.

5. Defining customer segmentation models

Customer segmentation models can be described as the various ways a company divides its customers. There are many customer data points that can be used to determine loyalty. However, the most important across all industries are:

1. Demographic
   
   Demographic segmentation refers to customers being divided according to their social characteristics. Examples include age, gender, and birthday.
   
2. Psychographic
   
   Psychographic segmentation takes into account an individual’s personality and attitudes as well as their aspirations, values, and interests. In customer segmentation for fashion, for example, one can divide the audience based on their favorite store, their preference for product and their concern about recycled clothes. It will be of greater interest to a Veterinarian clinic what kind of pets their clients have. Each industry will have its own data points, which are crucial to their unique business.
   
3. Customer behavior
   
   When building customer segments, customer behavior is one of your most important attributes. This division will give you a better understanding of customer habits, product usage, and trends. Here are some examples: Total amount spent on transactions; total number of transactions; date of last purchase; number of points spent in last month; number of redemptions complete, etc. This is how loyalty program customers can be measured.

   This allows for the tracking of member activity and the identification of trends automatically. machine learning and artificial intelligence allow segments to be created based on customer lifetime value trends. To give you an example of how it works, segmentation models for retail customers should target their highest performers in stores, and send promotions and communications to members who have had high spending in the past but are now declining in value.
   

4. Campaign Responses
   
   Segmentation of campaign response can be done based on, for instance, how your members want to receive communication (email, SMS, push notification, etc.), the channel they used to sign up in the loyalty program (web portal or mobile app) or how many friends they have referred. Segmentation can also be based on the response of customers to programs that award them different recognition tiers.
   
5. Multiple conditions
   
   Segmentation of customers can be applied to multiple characteristics at once. Companies can target members based on their membership type, their location, and whether they have purchased a particular product. To personalize the campaign at its lowest level, it is important to segment as specific and narrowly as possible.

6. Summary with CTA

Your customer segmentation journey begins with understanding your members’ preferences, needs and behavior. Your business will be ready for any segmentation opportunities by defining goals, objectives, resources, unique selling points, and key data points. Segmenting customers helps you target the right clients and present more lucrative opportunities in the right time and the best way. It will ensure their satisfaction and retention, as well as maximization of sales revenue and revenue.

Request a demo to learn more about customer segmentation models, and how you can build the best loyalty marketing strategy. They will match your request with a Loyalty Consultant who has experience in your market and industry.

The post Customer segmentation models for improving the performance of loyalty marketing campaign was first published on MarTech.